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Speaker logs off Internet taxes

By Mark Hamrick · Bankrate.com
Thursday, May 9, 2013
Posted 5 pm ET

Don't bet the house on the advance of an Internet sales tax measure. In fact, don't bet on the House, either.

The Senate-approved measure aimed at helping states capture an estimated $23 billion in annual sales taxes from Internet and other transactions is facing a steep challenge in the House of Representatives.

The Senate vote in favor of the Marketplace Fairness Act was by a margin of 69 to 27.

Boehner not a fan

House Speaker John Boehner is expressing caution. In an interview with Bloomberg TV, Boehner was asked whether he would support a measure enabling states to collect sales taxes on out-of-state "remote" sales. "Probably not," Boehner answered. As a basis of his skepticism, the Ohio Republican said the patchwork of sales tax rates across the country would be too difficult for businesses to manage. In reaction, the leading retail industry trade group remains optimistic. "The process in the House will provide an opportunity to address any outstanding concerns. We look forward to that debate in the House," said Stephen Schatz, spokesman with the National Retail Federation.

Giving it a hearing

The House Judiciary Committee plans to begin looking into the matter. The panel led by Rep. Bob Goodlatte, R-Va., has not yet scheduled a hearing. Supporters look to remedy 1992 Supreme Court ruling Quill Corp. v. North Dakota. The court held that a business must have a physical presence in a particular state if required to collect sales taxes from customers in that state. The justices also held open the possibility that Congress could seek to provide a solution through legislation, which is what supporters of the bill were hoping to do.

Most retailers like it

While Boehner's concern involves feared challenges collecting the taxes, retailers support the legislation. The Retail Federation complains the status quo favors online retailers at the expense of their brick-and-mortar competitors. Retailers are also concerned about the modern phenomenon of "showrooming," where someone checks out an item in a store and then orders it from an online retailer. Retailers with less than $1 million in annual sales would be exempt from the legislation.

Amazon.com supports the legislation as well, saying that the $1 million exemption covers 99 percent of online sellers.

Overstock.com wants another fix

Jonathan Johnson, a senior executive with Overstock.com, said his company is "opposed to the specific legislation, but we're not necessarily opposed to the concept." Johnson added, "We think a federal solution to the patchwork of varying state laws about remote seller tax collection would be a good thing."

He says that, as hearings are held in the House, "the flaws of the bill will come out and could be fixed."

EBay's bid

Pioneering online auction site eBay is waving a red flag. It has sought to increase the exemption to sellers with $10 million or less in annual sales or 50 or fewer employees. Brian Bieron, senior director of global public policy for eBay Inc., said, "We believe small businesses should be protected from any new national-scale tax collection scheme." Asked about the claim that all but 1 percent of online sellers would be exempt, Bieron said, "That's like lumping in all the garage sales in America." eBay's seller base includes everyone from so-called casual sellers to large retailers like Toys R Us and Dick's Sporting Goods.

At Overstock, Johnson said if eBay's solution of exempting larger sellers were allowed, that could encourage the existing patchwork, creating even bigger potential headaches for smaller operators.

Usual anti-tax crowd

While the legislation proposed seeks to collect taxes already levied, well-known forces opposing new taxes are aligned against these bills as well. Those include the conservative Heritage Foundation and Americans for Tax Reform, founded by Grover Norquist. While some supporters of the legislation are invoking the notion of states' rights, that may not be enough to overcome the "no new taxes" mantra.

Follow me on Twitter @hamrickisms.

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